What Happens to Society When Robots Replace Workers?

The technologies of the past, by replacing human muscle, increased the value of human effort – and in the process drove rapid economic progress. Those of the future, by substituting for man’s senses and brain, will accelerate that process – but at the risk of creating millions of citizens who are simply unable to contribute economically, and with greater damage to an already declining middle class.

Estimates of general rates of technological progress are always imprecise, but it is fair to say that, in the past, progress came more slowly. Henry Adams, the historian, measured technological progress by the power generated from coal, and estimated that power output doubled every ten years between 1840 and 1900, a compounded rate of progress of about 7% per year. The reality was probably much less. For example, in 1848, the world record for rail speed reached 60 miles per hour. A century later, commercial aircraft could carry passengers at speeds approaching 600 miles per hour, a rate of progress of only about 2% per year.

By contrast, progress today comes rapidly. Consider the numbers for information storage density in computer memory. Between 1960 and 2003, those densities increased by a factor of five million, at times progressing at a rate of 60% per year. At the same time, true to Moore’s Law, semiconductor technology has been progressing at a 40% rate for more than 50 years. These rates of progress are embedded in the creation of intelligent machines, from robots to automobiles to drones, that will soon dominate the global economy – and in the process drive down the value of human labor with astonishing speed.

This is why we will soon be looking at hordes of citizens of zero economic value. Figuring out how to deal with the impacts of this development will be the greatest challenge facing free market economies in this century.

If you doubt the march of worker-replacing technology, look at Foxconn, the world’s largest contract manufacturer. It employs more than one million workers in China. In 2011, the company installed 10,000 robots, called Foxbots. Today, the company is installing themat a rateof 30,000per year. Each robot costs about $20,000 and is used to perform routine jobs such as spraying, welding, and assembly. On June 26, 2013, Terry Gou, Foxconn’s CEO, told his annual meeting that “We have over one million workers. In the future we will add one million robotic workers.” This means, of course, that the company will avoid hiring those next million human workers.

Just imagine what a Foxbot will soon be able to do if Moore’s Law holds steady and we continue to see performance leaps of 40% per year. Baxter, a $22,000 robot that just got a software upgrade, is being produced in quantities of 500 per year. A few years from now, a much smarter Baxter produced in quantities of 10,000 might cost less than $5,000. At that price, even the lowest-paid workers in the least developed countries might not be able to compete.

To be sure, technological progress has always displaced workers. But it also has created new opportunities for human employment, at an even a faster rate. This time, things may be very different – especially as the Internet of Things takes the human factor out of so many transactions and decisions. The “Second Economy” (the term used by economist Brian Arthur to describe the portion of the economy where computers transact business only with other computers) is upon us. It is, quite simply, the virtual economy, and one of its main byproducts is the replacement of workers with intelligent machines powered by sophisticated code. This booming Second Economy is brimming with optimistic entrepreneurs, and already spawning a new generation of billionaires. In fact, the booming Second Economy will probably drive much of the economic growth in the coming decades.

And here is the even more sobering news: Arthur speculates that in a little more than ten years, 2025, this Second Economy may be as large as the original “first” economy was in 1995 – about $7.6 trillion. If the Second Economy does achieve that rate of growth, it will be replacing the work of approximately 100 million workers. To put that number in perspective, the current total employed civilian labor force today is 146 million. A sizeable fraction of those replaced jobs will be made up by new ones in the Second Economy. But not all of them. Left behind may be as many as 40 million citizens of no economic value in the U.S alone. The dislocations will be profound.

Suppose, today, that the robots and smart machines of the Second Economy are only capable of doing the work of a person of average intelligence – that is, an IQ of 100. Imagine that the technology in those machines continues to improve at the current rate. Suppose further that this rate of technological progress raises the IQ of these machines by 1.5 points per year. By 2025 these machines will have an IQ greater than 90% of the U.S. population. That 15 point increase in IQ over ten years would put another 50 million jobs within reach of smart machines.

Impossible? In fact, the vanguard of those 115-point IQ machines is already here. In certain applications, the minds of highly educated MD’s are no longer needed. In 2013, the FDA approved Johnson & Johnson’s Sedasys machine, which delivers propofol to sedate patients without the need for an anesthesiologist. An emerging field in radiology is computer-aided diagnosis (CADx). And a recent study published by the Royal Society showed that computers performed more consistently in identifying radiolucency (the appearance of dark images) than radiologists almost by a factor of ten.

Politicians, economists, and scientists might debate these particular estimates, but to do so is to miss the larger point. Machine intelligence is already having a major effect on the value of work – and for major segments of the population, human value is now being set by the cost of equivalent machine intelligence.

The challenge now is to keep up with 40% to 60% rates of progress … when even a genius like Henry Adams despaired of keeping up with just a 7% rate.

The simplistic policy answer is better training. But at this pace of change, improving the educational system will be perpetually too little and too late. Likewise, artificially boosting the minimum wage will only hasten the reckoning by subsidizing job replacement by intelligent machines. David Brooks has suggested that the government should aggressively build infrastructure, “reduce its generosity to people who are not working but increase its support for people who are,” consider moving to a progressive consumption tax, and “doubling down on human capital, from early education programs to community colleges and beyond.” But even if his program were effectively and aggressively implemented, it might keep up with a 40% rate of progress for only a little while.

Meanwhile, Brooks’s solutions will lead only to bigger government and greater command and control. And it is difficult to imagine how such a sluggish government system could keep up with such a rapid rate of change when it can barely do so now.

Ultimately, we need a new, individualized, cultural, approach to the meaning of work and the purpose of life. Otherwise, people will find a solution – human beings always do – but it may not be the one for which we began this technological revolution.